Heeros Plc’s Half-Year Report 1 January – 30 June 2024 (unaudited): Anticipated profitability growth, with return to sales growth as well

This release is an unofficial translation of the summary of Heeros Half-Year Report 1 January– 30 June 2024. The complete report in Finnish is available on the company’s website at www.heeros.com/tiedotteet.

April – June 2024 in brief

• Revenue increased by 1% from the comparison period to EUR 2.9 (4-6/2023: 2.9) million.
• Recurring revenue (contract and transaction revenue) increased by 1% to EUR 2.8 (2.7) million. Contract revenue increased by 6% to EUR 2.3 (2.1) million. Transaction volumes decreased by 6% and transaction revenue declined by 15% to EUR 0.5 (0.6) million.
• EBITDA increased by 105% to EUR 0.8 (0.4) million, representing an EBITDA margin of 28% (14%).
• Adjusted EBITDA increased by 94% to EUR 0.9 (0.5) million, representing an EBITDA margin of 30% (16%) of revenue.
• New customer order intake in terms of Annual Recurring Revenue (ARR) was approximately EUR 330 (150) thousand.

January – June 2024 in brief

• Revenue decreased by 0.4% year-on-year to EUR 5.6 (1-6/2023: 5.7) million.
• Recurring revenue (contract and transaction revenue) was at the level of comparison period at EUR 5.4 (5.4) million. Contract revenue increased by 4% to EUR 4.4 (4.2) million. Transaction volumes decreased by 8% and transaction revenue declined by 16% to EUR 1.0 (1.1) million.
• EBITDA increased by 63% to EUR 1.3 (0.8) million, representing an EBITDA margin of 24% (15 %).
• Adjusted EBITDA increased by 65% to EUR 1.5 (0.9) million, representing an EBITDA margin of 26% (16%).
• New customer order intake in terms of Annual Recurring Revenue (ARR) was approximately EUR 430 (360) thousand.
• Operational cashflow increased by 51% to EUR 1.4 (0.9) million.

KEY FIGURES

1 Recurring revenue is divided into two parts: contract revenue (fixed usage fees and service agreements) and transaction revenue.
2 The adjusted figures for Q2/2024 include an adjustment of EUR 62 thousand and H1/2024 an adjustment of EUR 111 thousand for non-recurring restructuring costs.

NIKLAS LAHTI, CEO

“Heeros’ second quarter delivered outstanding results across all metrics. Profitability improved as anticipated, even though the decline in transaction volumes continued to affect revenue growth. In positive news, Heeros managed to return to a growth trajectory in sales.

EBITDA increased over 90%
During the second quarter our EBITDA (adjusted) saw a significant increase of 94%, reaching EUR 878 thousand (Q2 2023: EUR 454 thousand), representing 30% (16%) of revenue. During the first half of the year, EBITDA (adjusted) grew by 65% to EUR 1 455 (882) thousand. Profitability has improved due to measures implemented over the past 15 months, aimed at enhancing operational efficiency as well as achieved cost savings across all areas of the company.

During the second quarter EBITDA-Cash, where investments in tangible and intangible assets have been deducted from EBITDA, rose by over 430% to EUR 612 (Q2 2023: 115) thousand. For the half-year, EBITDA-Cash grew by 450% to EUR 852 (H1 2023: 155) thousand. Additionally, operational cash flow improved by 51% to EUR 1,354 (H1 2023: 898) thousand. This positive trend in profitability is expected to continue throughout the year.

Contract revenue grew by 4% during the half-year period. Net revenue retention (NRR) remained strong at 103% (107%). Success in these areas reflects our focus on building sustainable customer relationships and minimizing customer churn.

Revenue growth driven by increased contract revenue
During the quarter, revenue started growing again, driven by a positive increase in contract revenue (+6% compared to the previous quarter).

Economic activity in Finland increased slightly from the record-low first quarter but remained low overall. This kept our transaction volumes low (-6% Year-on-Year growth in Q2 2024, -9% in Q1 2024, -8% in Q4 2023, and -8% in Q3 2023).

Despite the positive trend in contract revenue, total revenue in the second quarter increased by only 1%, reaching EUR 2,898 (2,859) thousand due to decreasing transaction revenue. Total ARR at the end of June (which is calculated as the sum of annualized June contract revenue and transaction revenue of previous 12 months) is EUR 11,023 (June 2023: 10,934) thousand.

Significant growth in new customer acquisition
New customer orders, measured by order intake ARR, grew by 120% during the quarter, reaching EUR 330 (150) thousand. For the half-year, growth was 20%, from EUR 360 to 430 thousand. This performance was excellent, especially considering the major changes we made to the new sales team at the start of the first quarter. Revenue from customers won during the quarter will be fully visible only in the last quarter of the year.

Several customers’ progress with their ERP projects and ongoing market shifts, such as the announced end-of-life for Telia Talous, Visma Payroll, and Digia Enterprise Payroll, will in our estimate impact positively Heeros’ sales.

We have seen a decline in customer hesitation when making decisions. The number of leads, meetings, and new sales cases has increased significantly compared to the past few years. If this trend continues, we expect the positive sales momentum to carry on into the second half of the year after several challenging quarters.

Progress in product development as planned
During the second quarter, we made significant progress in product development, focusing on financial management software, where we achieved several notable sales wins. In addition, customers have enthusiastically welcomed the updated reporting tool in our PSA product.

Towards a brighter future
Having served as CEO for just over a year, I am pleased to see the positive changes in Heeros. From the outset, we focused on profitability, operational efficiency, and demonstrating Heeros’ commitment to growth without compromising on profitability. These goals have been met, and Heeros’ financial profile has markedly improved over the year. I believe this positive profitability trend will continue, bolstered by strong sales growth.

During the second quarter, our largest shareholder, Rite Ventures, supported by Ville Skogberg, flagged their investment in Heeros at 33.45%. Our collaboration with our main shareholders, Viking Venture and Rite Ventures has been productive, and I look forward to its continued success.”

FINANCIAL OUTLOOK FOR 2024 (PUBLISHED ON 1 FEBRUARY 2024)

Heeros expects that both revenue and EBITDA for 2024 financial period improve from the 2023 financial period.

FINANCIAL INFORMATION IN 2024

24 October 2024 – Business Review January-September 2024

Heeros Plc
Board of Directors

More information:
Niklas Lahti, CEO, tel. +358 40 774 1777, [email protected]
Juho Pakkanen, CFO, tel. +358 40 506 9898, [email protected]

Distribution:
Nasdaq Helsinki
Essential media outlets
www.heeros.com/sijoittajille

Heeros in brief
Heeros is a pioneer in SaaS corporate software with a mission to develop software for streamlined business management. Heeros seeks to meet the needs of corporate and financial management clients by providing the software suites offering the best user experience for the digitalisation of business-critical financial management, ERP and HR processes. Heeros was established in 2000. The company’s shares are listed on Nasdaq First North Growth Market Finland, maintained by Nasdaq Helsinki Oy, under the trading ID HEEROS. www.heeros.com